Shun Tak, casino majors consider bets on Korea

PUBLISHED : Monday, 10 November, 2008, 12:00am
UPDATED : Monday, 10 November, 2008, 12:00am

Country's ban on gambling by citizens is a stumbling block

Hong Kong conglomerate Shun Tak Holdings and other major casino operators Genting Group, Las Vegas Sands and MGM Mirage are exploring opportunities in South Korea for gaming and resort businesses, the country's authorities said.

South Korea is planning new gaming facilities on Jeju Island, a self-governing province.

But the development may not happen soon because current regulations limit gambling at the country's casinos to foreigners.

The four companies, along with other smaller investors, were invited to the island by the government for a site visit three months ago to assess its investment potential, according to Cha Woo-jin, general manager of Jeju Free International City Development.

'They have shown strong interest in our infrastructure and our outlook for our tourism industry. But they remain sceptical about a real investment plan, given the existing ban on domestic citizens getting into the casinos,' said Mr Cha.

South Korea has nearly 20 casinos, and the largest and most successful is the only one permitted to take bets from locals. Kangwon Land, a four-hour drive from Seoul, booked 1.07 trillion won (HK$6.2 billion) in revenue last year, accounting for nearly half of the country's gaming revenue.

Jeju's eight casinos lag far behind. The island is about an hour's flight from Seoul but because the Jeju casinos cannot take bets from locals, they are forced to rely on Japanese and, increasingly, Chinese gamblers for their revenue.

Mr Cha said the central government was considering whether to lift the ban on local customers making use of the casinos. Given the time required for construction and amendments to the law, he did not think the first foreign-owned casino would be in place before 2015.

MGM, Las Vegas Sands and Shun Tak have gaming businesses in Macau, where the growth of the sector has been interrupted by the global credit crunch, visa restrictions imposed on mainlanders by the central government, and intensifying competition due to overcapacity.

Macau's gaming revenue fell 3.5 per cent last month, the second consecutive drop after rising in each of the first eight months.

Slot machines and gaming tables were expected to see a 13-fold and seven-fold increase, respectively, over the period 2004 to 2009 because of the granting of additional licences, a UBS report said. Several Asian governments are considering legalising casino gaming.

Japan, which is a main feeder market for South Korea's casinos, has flirted with the idea, and several global gaming firms have expressed interest.

Slot-machine-like pachinko parlours already generate nearly US$300 billion in annual revenue in Japan.

Taiwan is also considering allowing a casino to be built, on the outlying island of Penghu.

Singapore is set to open its first two casinos in the next two years.

Several casino mega-resorts are under construction outside Manila. South Korea has the advantage of a low gaming tax, which to a great extent determines the level of commissions and rebates casino operators are able to offer VIP junket agents and their high-rolling clients.

The country's 10 per cent tax on gross gaming revenue compares favourably with rates of 39 per cent in Macau and 25 per cent in Malaysia and the Philippines.

Still, several industry experts were lukewarm about the prospects of building mega-resorts on Jeju.

'Jeju, like many locations, has the potential to host an interesting gaming property,' said Michael Chen, Asia president for US casino developer Harrah's Entertainment.

'But it is constrained by the foreigners-only environment, and they have given out too many licences compared with the size of the existing market, making it difficult for operators to be competitive.

'If they were to allow local participation in the casinos, it would dramatically increase their chances of attracting meaningful investment from global gaming companies,' he said.